Petrobras’ presalt fields requires substantial amount of money to tap, but as long as oil prices stay above the $40 to $45 per barrel range, they could at least become profitable over the long term. Fellow Fool Tyler Crowe notes that the company has plans to use a monstrous $237 billion investment program to develop that presalt formation off Brazil’s coast, which is projected to double Petrobras’ production levels to 5.7 million barrels of oil equivalent per day by the end of 2020. In addition, oil production in Brazil’s Libra field is expected to be much cheaper, which could keep the money flowing during the costliest parts of the presalt development.
Fool contributor Eric Volkman notes that Petrobras has raised some $11 billion from bond issues, spread over six tranches with maturities ranging from 3 to 30 years, which will be used to finance planned expenditures in presalt formation offshore Brazil. Petrobras is also willing to sell off some part of its 67% stake in Petrobras Argentina to gain further funding.
Petrobras may be focusing on the world’s most ambitious growth plans over the next several years, but the company is also exposed to many potential threats. Growing domestic pressure on the Brazilian government to cut gasoline prices has forced Petrobras to operate at huge losses. In its latest quarter, the company suffered a $1.82 billion loss in its refining and marketing segment, caused by the necessity of importing crude and finished petroleum products to meet domestic demand.
Petrobras also relies on Brazilian manufacturers for much of its drilling and exploration equipment, which has led to several cost overruns and scheduling delays, costing it thousands of dollars every day. FMC Technologies and GE will supply offshore equipment needed for the pre-salt formation program in Brazil, but this far, these two companies haven’t been able to offset the inadequate performance of Petrobras’ Brazilian suppliers.
Petrobras hasn’t contented itself with staying close to home — the company recently dominated an offshore block auction for the Gulf of Mexico by acquiring rights to 35 blocks for $268 million. The company also set up a $2.7 billion joint venture with Seadrill Ltd (NYSE:SDRL), which will provide deep-water infrastructure to facilitate its drilling activities.
Putting the pieces together
Today, Petrobras has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.
The article Is Petrobras Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro (NYSE:PBR) S.A. (ADR) and Seadrill. The Motley Fool owns shares of General Electric (NYSE:GE) Company and Seadrill.
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